THE STATE OF MICROFINANCE REFORM IN MODERN JAMAICA: CULTURAL ...

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THE STATE OF MICROFINANCE REFORM IN MODERN

JAMAICA: CULTURAL BARRIERS, CLIENTELISM,

DISPARATE LENDING PRACTICES, AND THE FORGOTTEN

FEMALE ENTREPRENEUR

By: Courtney A. Hollander*

I believe that we can create a poverty-free world because poverty is

not created by poor people. It has been created and sustained by the

economic and social system that we have designed for ourselves; the

institutions and concepts that make up that system; the policies that

we pursue.1

INTRODUCTION ................................................................................................514

I.

FEMALE ENTREPRENEURSHIP GLOBALLY AND IN JAMAICA,

INCLUDING A HISTORICAL PERSPECTIVE..............................................517

A. Developing a Global Context: Comprehensive Influences on

Female Entrepreneurs ...................................................................518

B. Breaking Down the Local Numbers: Female Entrepreneurs in

Jamaica .........................................................................................521

C. Jamaican History: The House on the Hill and Control by the

Resident Don ................................................................................522

II.

INSTITUTIONAL BARRIERS TO FEMALE ENTREPRENEURSHIP IN

JAMAICA ...............................................................................................525

A. Access to Microfinance Loans .....................................................525

1. Microfinance Lending, Generally ..........................................525

2. Seeking a Double Bottom Line ..............................................526

3. The Jamaica Microfinance System by the Numbers ..............527

4. The Negative Impact of Political Persuasion on

Repayment Loans ...................................................................527

5. Sources of Development: If Not Microfinance, Where and

* Courtney A. Hollander, Wisconsin Journal of Law, Gender & Society, J.D.

Candidate, University of Wisconsin Law School, 2014; A.B., Ripon College, 2011. The

author wishes to thank Heidi Thole and Abby Churchill for their copy editing assistance.

1. Muhammad Yunus, Nobel Peace Prize Lecture (Dec. 10, 2006), available at

. Yunus

was awarded the Nobel Peace Prize in 2006 in conjunction with Grameen Bank. Id. Grameen

Bank is located in Bangladesh and gives ¡°collateral-free income generating, housing, student

and micro-enterprise loans to the poor families.¡± Id. Yunus created Grameen Bank in 1983,

and as of 2006, Grameen Bank had loaned $6 billion at a repayment rate of 99 percent. Id.

Seven million people have benefited from Grameen Bank loans, 97 percent of which were

women. Id. Since receiving loans from Grameen Bank, 58 percent of borrowers have crossed

the poverty line. Id.

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What Business Model? ...........................................................528

B. Lack of Credit Reporting and Microfinance.................................529

III.

LEGISLATIVE SOLUTIONS: ADDRESSING THE BARRIERS VS.

IGNORING THE BARRIERS .....................................................................531

A. Current Inhibitors: Clientelism and the Lack of Regulation ........531

B. Current Inhibitors: Gender as a Legislative Influence ..................532

C. Pending Legislation: The Micro Credit Act .................................534

D. Pending Legislation: An Analysis ................................................536

E. Credit Reporting Bureaus .............................................................537

F. Thinking Outside of Microfinance Box: Crowdfunding

Through .....................................................538

G. Microfinance Tax Incentives: The Creation of a New Entity.......539

CONCLUSION....................................................................................................540

INTRODUCTION

Microfinance, in its simplest terms, is the lending of small amounts of

money, which commercial banking institutions consider trivial, to unbankable2

but entrepreneurial citizens throughout the world.3 Generally speaking,

microfinance lenders seek to serve the world¡¯s poorest citizens, 70 percent of

whom are women.4 Incidentally, 85 percent of microfinance loan recipients

throughout the world are women.5 Microfinance loan applicants typically have

no access to physical collateral, effectively closing the doors to commercial

banks.6 In sum, microfinance is the developing world¡¯s response to

entrepreneurs being cut off from traditional financial channels. This response,

however, is imperfect and cannot be considered a standalone solution.

When microfinance institutions (MFIs) took hold in the 1980s, they were

touted as the cure to world poverty.7 More than thirty years later progress

toward a poverty-free world has been made, but the altruistic vision presented

2. The author uses the term unbankable throughout this article to refer to individuals

who are unable, for economic reasons, to utilize the services of a traditional bank either

because they would not qualify for traditional services or because their financial needs are

considered too small-scale to be profitable.

3. See Eoin Wrenn, Micro-Finance Literature Review 1, available at

.

4. Small Change, Big Changes: Women and Microfinance, INT¡¯L LAB. OFF. ¨C GENEVA,

¡ª-dgreports/¡ª

gender/documents/meetingdocument/

wcms_091581.pdf.

5. Id.

6. See, e.g., PHILIP BOND & ASHOK RAI, COLLATERAL SUBSTITUTES IN MICROFINANCE

1 (2002), available at .

7. See Claire Provost, The Rise and Fall of Microfinance, GUARDIAN (Nov. 21, 2012,

11:16

pm),

.

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above has not been fully realized due in part to four unfortunate, but

nonetheless realistic, economic realities.8

First, increasing income is not necessarily conducive to decreasing

poverty.9 If that increased income is spent on gambling, alcohol or any plethora

of thriftless expenditures, decreased incidences of poverty will not necessarily

follow from an increase in income.10 Personal budget allocation is not

discussed in this article but can result in further economic disparities for both

male and female11 entrepreneurs in developing countries.12

Second, microfinance funding falls in line with a basic financial concept:

money lent to different parties will not yield a constant result.13 In the simplest

example of this concept, consider a loan of $500 given to both Party A and

Party B. Party A sees a potential business opportunity and invests its money

into a basket-weaving business, a much-needed service in the local community.

Party A has substantial success in the community, repays its loan and realizes a

net gain in its business. Meanwhile, Party B invests its money in tools and

starts a general repair business. However, Party B does not realize the members

of its community do their own in-home repairs and do not require a

repairperson. Party B cannot make its loan repayments and its business runs a

net loss. Both parties, after receiving the same amount of money, have seen a

substantially different result. Thus, the effect of a microfinance loan becomes

8. In 2011, 17 percent of people in the developing world lived on or less than $1.25 a

day. This compares to 43 percent in 1990 and 52 percent in 1981. Even with a sustained

decrease in poverty incidence, an estimated 1 billion people will still live on or less than

BANK,

$1.25

a

day

in

2015.

Poverty

Overview,

WORLD

(last updated Oct. 8, 2014).

9. Wrenn, supra note 4, at 4-5.

10. Id.

11. The author would like to acknowledge that her use of the terms female

and woman are used interchangeably due to a lack of distinction between the two in her

sources. This does not reflect her personal understanding of the difference between

biological sex and gender, nor is it meant to exclude transgender and genderqueer

individuals from the scope of her research.

12. For more information on budget allocation in developing countries, see generally

INT¡¯L FOOD POLICY RESEARCH INST., INTRAHOUSEHOLD RESOURCE ALLOCATION IN

DEVELOPING COUNTRIES: MODELS, METHODS, AND POLICY (Lawrence Haddad et al. eds.,

1997). From a purely gendered standpoint, budgetary distinctions between male and female

spending should reduce the impact of this economic reality: ¡°[i]t is widely perceived that

men spend a higher share of their income on goods for their personal consumption than do

women. Alcohol, cigarettes, status consumer goods, and even ¡®female companionship¡¯ have

been noted. In contrast, women are believed to be more likely to purchase goods for children

and for general household consumption.¡± John Hoddinott et al., Testing Competing Models

of Intrahousehold Allocation, in INTRAHOUSEHOLD RESOURCE ALLOCATION IN DEVELOPING

COUNTRIES: MODELS, METHODS, AND POLICY 129,130 (Lawrence Haddad et al. eds., 1997).

13. DAVID ROODMAN, DUE DILIGENCE: AN IMPERTINENT INQUIRY INTO MICROFINANCE

140-41 (2012) (noting that ¡°[i]f you lend three friends $1,000 each, they will do different

things with the money and achieve different outcomes by luck or skill. . . . Among the

millions of borrowers, microcredit no doubt lifts some out of poverty even as it leaves others

worse off.¡±). ¡°Microcredit¡± is a specific type of microfinance defined as ¡°loans of $50$1,000. . . given to people typically earning no more than $2 per day.¡± Id. at 1.

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contingent on the economic climate, the individual lendee, and their business

choices.

Third, statistical inequities and shortcomings indicate that measuring the

ability of microfinance to lift lendees out of poverty is difficult, if not

altogether unavailing.14 Four factors are said to make the measurement of

microfinance problematic:

1.) Different people use microfinance [in] different ways, 2.) Even

people who use it in the same way can experience different

outcomes, 3.) Families, villages, and neighborhoods are complex

webs of causal relationships, which are hard to disentangle, [and] 4.)

Average effects depend as much on the ability of microfinance

institutions to select those most likely to use finance as well as it

does on the potential effects on each user.15

These factors make it difficult to affirmatively measure the ability of

microfinance loans to alleviate poverty-ridden citizens, and all four factors are

considered in this article.16

Finally, several critics point to the commercialization of microfinance: the

shift from an emphasis on bringing citizens out of poverty to the sustainability

and profit of the lending institutions themselves.17 Critics here note the

existence of a profit-driven mission drift18 creating a ¡°sort of zero-sum game:

more profit = less service and, implicitly, fewer benefits to clients.¡±19 While it

would seem counter-intuitive that more profit leads to a reduction in services,

the method for creating higher profits is suspect in this analysis: ¡°. . . efforts to

reach a significant scale by securing financial sustainability may lead to a

tendency to provide larger loans to less poor clients and to employ stricter loan

screening procedures. In other words, scale-up could lead to a drift from an

14. Id. at 143-71 (noting the existence of mere correlation between lending money

and poverty reduction and not addressing causation, selection bias, and further statistical

issues).

15. ROODMAN, supra note 14, at 172.

16. Factors 1 and 2 are addressed above at pp. 2-3. Factor 3 is specifically addressed

infra Parts II.A and III.A. Factor 4 is addressed infra Part II.

17. See, e.g., Road to Redemption: The Industry is Starting to Revive, ECONOMIST

(Jan. 12, 2013), available at .

18. In general, mission drift ¡°occurs when an institution experiences an ¡®unplanned or

hidden change in preferences and resulting behaviors¡¯.¡± MARC MOSER, COMMERCIAL

INVESTMENTS AND MISSION DRIFT IN MICROFINANCE 64 (HAUPT BERNE 2013). Microfinance

mission drift is ¡°the de-emphasis of the social mission in pursuit of higher financial returns.¡±

Id.

19. Robert Peck Christen & Deborah Drake, Commercialization: The New Reality of

Microfinance, in THE COMMERCIALIZATION OF MICROFINANCE: BALANCING BUSINESS AND

DEVELOPMENT 2, 2- 4 (Deborah Drake & Elizabeth Rhyne, eds. 2002) (further noting that

¡°[n]ot only are traditional nongovernmental organizations (NGOs) dedicated to microfinance

transforming into licensed banks and non-bank financial intermediaries in order to access

public funds or small savings deposits, but some banks and finance companies are noticing

the potential of microcredit to enhance their product mix and bottom line.¡±).

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MFI¡¯s poverty alleviation mission.¡±20 Quite simply, when these profit-driven

motives of traditional lending institutions take hold, microfinance quickly

strays from the altruistic poverty-reduction model, and nascent, unbankable

entrepreneurs get left behind.21

Using female entrepreneurs in Jamaica as an example, this article points

out one country¡¯s shortcomings in microfinance lending due to the four

economic realities expressed above as well as country-specific influences

hindering its microfinance development. Legislative solutions to ameliorate

these shortcomings will keep Jamaican MFIs on track with their altruistic

origin. Because both entrepreneurial structures and the success of MFIs vary

from country to country, it is important to realize that solving microfinance

problems will not be a one-size-fits-all solution. However, a Jamaica-specific

solution is necessary because Jamaica¡¯s female entrepreneurs are being left

behind in favor of furthering both cultures of old and cultures of young: the

indoctrinated, paternalistic Jamaican social culture of old and the troubled

Jamaican political culture of young. These two Jamaican cultures work together

to limit access to microfinance loans, placing the female entrepreneur in an

economically untenable position.22

Part I of this note outlines A) comprehensive influences on female

entrepreneurs across the globe, B) female entrepreneurs in Jamaica by the

numbers, and C) Jamaican history necessary to understand how the political

and social climate affects microfinance lending initiatives. Part II outlines the

existing barriers to a flourishing entrepreneurial environment in Jamaica,

including limited access to microfinance loans and the lack of credit reporting.

Part III addresses legislative solutions to these barriers, including existing

legislation, pending legislation, and solutions not being considered but which

are viable. Part III ultimately concludes the end-goal of microfinance, as the

panacea for world poverty, is not lost. Despite facing some serious barriers, the

end-goal can be realized at least in part by developing legislative solutions to

the problems that have arisen.

I. FEMALE ENTREPRENEURSHIP GLOBALLY AND IN JAMAICA, INCLUDING A

HISTORICAL PERSPECTIVE

Jamaica¡¯s precarious entrepreneurial environment is best understood by

first gaining a bird¡¯s eye view of the comprehensive influences on female

entrepreneurs across the world. This bird¡¯s eye view is followed by a tailored,

country-specific overview on female entrepreneurship in Jamaica, including

Jamaica¡¯s relevant history.

20. Opportunity Int¡¯l. What is Mission Drift in the context of the microfinance

industry?,ALL PARTY PARLIAMENTARY GROUP ON MICROFINANCE (Mar. 2007), available at

.

21. Christen & Drake, supra note 20, at 4 (describing ¡°commercialization as a process

of something that ¡®loses quality to gain profit¡¯¡±).

22. See infra Part III.B.

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